We spoke to the impact investors Gwendolyn Schröter, Jasper Schlump and Moritz Schwarz about where impact investing is heading and why it's crucial for a green transformation.
Written by Claudia Bumb (Program & Communication Manager, Hafven Innovation)
With increasing attention to the planet’s ecological condition, impact Startups, green Economy, and green tech are gaining momentum. As a result, impact investments have become an increasingly relevant field in the investor’s landscape.
According to The Green Startup Monitor published by Bundesverband Deutscher Startups and Borderstep Institut, two-thirds of german startups have sustainable approaches on their business agenda, while one-third of them consider themselves green startups. Studies have shown that 58% of those startups, that strive to push forward a greater transformation, aim for venture capital, but only one-fifth finally receive venture capital funding.
We wanted to discuss the requirements to enable more investments into impact-driven businesses with our panel guests at the Startup Ceremony of our seventh batch of the Hafven Impact Accelerator and invited three experienced startup investors to share their perspectives with our panel host and Head of Accelerator Dörte Roloff.
In this article, you can find a summary of our key takeaways from our panel guests Gwendolyn Schröter (CEO of Golzern Holding GmbH, investing in early-stage sustainable hardware startups), Moritz Schwarz (investment manager at neosfer, formerly main incubator and initiator and co-founder of the Impact Festival) and Jasper Schlump (Head of Investor Relations at capacura — a leading early-stage impact investor in Germany).
Dörte: What needs to be done to ensure that investments meet the current requirements of the impact economy? How can we democratize investments?
Jasper: To us, digitalization plays a huge role in better evaluation processes, enabling objective decision-making. A large number of startups fail in the valley of death, as the risk and energy efforts are still high after the first fundings of 25-100k, which so often derive from family, friends, and fools. Therefore, more capital needs to be channeled into this stage. At capacura, we work with AI-supported evaluation processes, because they allow more startups to be reviewed and enable higher transparency in the decision-making process.
Dörte: Why are investments in hardware startups so important?
Gwendolyn: Hardware and manufacturing startups are especially relevant for the green economy, as many ecological challenges require sustainable solutions for industrial production, machinery, and hardware. Yet, this branch is often underrated by investors, due to more limited scalability, compared to digital business models. It’s a slow but accelerated growth process and it’s a great chance for SMEs and family offices to invest in and support these startups with their long-term experience. But also having a strategy of using VC wisely, is crucial. With investments in hardware startups, usually machinery is not financed by shareholder capital: instead, it is often borrowed capital from financial institutions. So it makes sense to rent or achieve machinery from secondary markets, during prototyping phases.
Dörte: The financial sector plays a key role in the acceleration of impact-driven businesses. At the same time, this sector is highly underrepresented, when it comes to receiving investments. How can this be addressed and what policies exist to decrease this shortage?
Moritz: The EU taxonomy is an outcome of the EU Green Deal and it defines which activities promote sustainability and which do not. Therefore it provides transparency and threshold values for companies but also for decision-makers. In this way, financial streams should be directed to the ones that operate sustainably. With planning security, risk model adjustment, better conditions for those who operate sustainably, and putting pressure on those who don’t, the financial sector plays a key role in enabling sustainable transformations and is placed in front of the real economy. Besides establishing green bonds etc., financial industries also have the responsibility to review and adjust their assessment models to make being unsustainable become more expensive. At main incubator, we have a wider definition of green fintech and consider every technology as green fintech, which generates and collects data to provide transparency, also along the supply chains. Good examples are carbon accounting, carbon offsetting, and carbon credits.
Dörte: There are many ways to forecast or measure the social and ecological impact of a startup’s activities. What metrics do you look for, when choosing new investees?
Jasper: I think it is extremely important to invest in the ones, where we can deliver the greatest value and support with the expertise and experience, that we bring ourselves. As I said, we are using AI, which of course works only as good, as the data, that is fed to it. Looking at the key success indicators of startups, we know that the team, business model, smart capital, idea, and but very importantly timing are crucial factors. And for us, a way to go is to look at the factors why startups were not successful because there are more data available. Looking at frameworks, we use the Sustainable Development Goals as a framework since our profile topics are education, health, and the environment with a big focus on tech.
Moritz: As seed investors, we work with startups that have almost no history of environmental footprint since they are so young. So there is nothing to really measure yet. Therefore, we strongly look at the founder’s attitude and whether their purpose is authentic. We also think it’s important, that a company is able to scale up because only then, they can have a larger impact. Linked to this, metrics can be defined to measure impact in the long run, and in the best case, the impact increases with the revenue.
Dörte: Especially investing in B2B startups has a big potential of levering impact. How do you approach bringing startups and SMEs together?
Gwendolyn: For us, the upside of investing in B2B startups, compared to B2C products is, that it's less marketing intense, and bigger wheels can be moved, working with just one corporate client. Many SMEs have their capital invested in stock portfolios and we promote the position to admix capital by also engaging in startup investments. So the fact that this does not always have to be super risky, hip, or crazy is something we can not advocate enough for.
Dörte: Studies published by PWC provide data, that two-thirds of European startups switch to North American markets. How can we solve the problem of successful companies being sold to the US.?
Moritz: Later-stage companies need more financial support. Looking at sustainability-driven startups, the number of foundations and knowledge has risen in Europe and is bigger than in the US. Therefore, we need big corporates with a lot of capital like pension funds, or courageous people with a good track record, who can raise big venture funds, to direct money into this asset class.
Dörte: Last but not least: from your experience and in a nutshell, what are other adjusting screws to support and push this transformation forward?
Gwendolyn: I think that education is a huge factor. The earlier we start telling our children, that money can also be a driver for positive developments, the more we will change as a society.
Moritz: Politics can provide a safety framework for sustainably acting corporates. We need to come to a point, where sustainable activities are not punished but supported and where positive regeneration of the planet gets incentivized.
Jasper: I think there is good reason for great hopes. There are better-informed founders than 30 years ago, who think about the impact topic holistically. I’m optimistic that we will have many impact-success stories in the future.
Are you interested in accelerating with Hafven Impact Accelerator? Find more information.